The money, which comes from oil revenues and seized assets of the former regime, was handed to Iraqi ministries by the American-led Coalition Provisional Authority (CPA) but now cannot be traced.
Donald Rumsfeld, the US defence secretary, has been asked by three senators to provide a full written account of the money, including the sum that each ministry received and how it was spent.
The draft report by the CPA’s inspector-general, dated July 12, claims that the CPA “did not implement adequate controls” to ensure that money paid by the Development Fund for Iraq was properly used for salaries of Iraqi employees.
On one site, 8,206 Iraqi guards were on the payroll but only 603 could be counted. In another case, $17m had been allocated to guards and the Iraqi army without a single piece of documentation.
The draft report also claimed that an “improper” $120m payment was made in May 2004 because of “miscommunication between the CPA and the comptroller’s office”.
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The inspector-general’s office refused to comment on the report, saying that it was still in draft form and would not appear for several weeks.
“We have sent the report to the Pentagon and are awaiting their comments,” said a spokesman.
The inspector-general has issued a series of damning reports in recent weeks. One issued at the end of July examined $1 billion of contracts. It found that crucial files were missing or incomplete, officers had not followed proper procedures and had not always ensured that contracts were fair or reasonable.
Another report into the seizure of assets after the fall of Saddam Hussein found that bank vaults had been left unattended — in one case the keys to a safe containing millions of dollars had been kept in a rucksack.
Concern has also been expressed over the failure to keep proper inventories of valuables seized from the regime — including large amounts of jewellery that had belonged to Saddam’s son Uday.